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Friday, August 11, 2000

Liberty House
owner’s plan gives
retailer higher value

Retailer wants to lease Waikiki store

By Peter Wagner

Major creditors in the Liberty House bankruptcy would be given cash, stock and a Waikiki department store but not control of the company under a reorganization plan filed in U.S. Bankruptcy Court by the retailer's mainland owner.

Liberty House "Our plan will permit Liberty House to reorganize successfully and to continue operating as Hawaii's premier retailer," said Steve Plonsker, Executive Vice President of Chicago-based JMB Realty Corp.

Filed by JMB and affiliate Pacific Lease Finance yesterday, the plan would give the equity holders more than 64 percent of new common stock to be issued by the company.

But, unlike a separate reorganization proposal filed by Liberty House Inc. creditors and the company's management last week, JMB's plan assumes Liberty House is worth more than it owes.

"Their excessive valuation of the company is not supported," said Chuck Choi, attorney for a committee of unsecured creditors representing vendors and other small creditors.

"It's an attempt to retain control of the business. The unsecured creditors are going to be far better off under the joint plan supported by the creditors committee," Choi said today.

JMB's plan says that Liberty House is worth $280 million compared to the $269.5 million owed to creditors. The plan would issue 30 million shares of new common stock, 52.5 percent of which would go JMB with 11.7 percent going to Pacific Lease.

Mayor creditors led by Bank of America with secured claims totaling $165 million would receive 17.5 percent of the new stock, valued at $15 million.

The balance of payments would include $20 million in cash, Liberty House's Waikiki store, valued by JMB at $50 million, and $80 million in secured notes. Under the JMB plan, the Kalakaua Avenue property is the only store contemplated for transfer to the creditors.

Smaller creditors owed $22.6 million would receive full repayment under the JMB plan, with $19 million in cash and the balance in unsecured notes.

But the creditors' plan, which holds that Liberty House is worth less than its debts, would turn the company over to the Bank of America-led creditors.

According to the bank's plan, Liberty House is worth $190 million while its debts total $207.9 million. The lenders propose to convert their claim of $149.2 million to controlling equity in the company with the issuance of new stock.

Under this plan, small creditors including store vendors could opt for 60 percent of their claims in cash, or 78.6 percent repayments based on 40 percent cash and the balance in unsecured notes.

Bank of America attorneys last night had not seen the JMB filing and declined comment.

Bankruptcy Court Judge Lloyd King is scheduled to review both plans and hold a hearing on Sept. 7. If approved by the judge, the reorganization plans would be sent to thousands of Liberty House creditors for vote.

The 150-year-old retailer, Hawaii's oldest and largest retail chain, filed for Chapter 11 bankruptcy on March 19, 1998, listing assets of $284.2 million and liabilities of $248.4 million. Court documents filed earlier this year by the lenders showed Liberty House debts at $236 million -- $150 million to lenders, $46 million to smaller creditors and the balance in administrative costs, interest and other claims.

The debate over the value of Liberty House is part of a long battle for control of the company between two opposing boards of directors, one established by the lending group at the outset of the bankruptcy 2 1/2 years ago.

JMB and Bank of America filed opposing reorganization plans last year. The plans, superseded by the current ones, were put on hold pending resolution of a $138 Internal Revenue Service tax claim against former Liberty House parent Northbrook Corp. The claim was reduced to $2.6 million in April but the retailer currently faces a second IRS claim of $39 million that could take two years to resolve.

In a statement yesterday, JMB said it believes Liberty House would be worth $330 million -- $50 million more than its reorganization plan provides -- if the 12-store company were liquidated.

"Even though the owners would receive far more if Liberty House were to be liquidated, the plan demonstrates our continued support of Liberty House as an ongoing business," Plonsker said.

Liberty House wants
to leave Waikiki,
lease property to
multiple retailers

By Peter Wagner

Contrary to a proposal by owner JMB Realty Corp. to give a Liberty House store in Waikiki to bankruptcy creditors, the retail chain's management is pursuing its own plans to lease the valuable property to multiple retailers.

"Our proposal would hopefully maximize the value of that property by increasing our income by leasing to other retailers who would provide the highest and best use of the property," said Liberty House Inc. President John Monahan.

JMB has been struggling to keep control of the Hawaii department chain in a Chapter 11 bankruptcy highlighted by opposing boards of directors. The Chicago-based company filed a reorganization plan yesterday that would give the 40,000 square-foot department store -- one of 12 in the Liberty House chain -- to creditors led by Bank of America as partial repayment of $165 million in outstanding loans. The JMB plan values the Waikiki property at $50 million.

JMB also would retain control of the company under the plan by giving itself the majority of new common stock to be distributed by Liberty House. But the plan assumes a value of $280 million for Liberty House assets, a figure major creditors say is about $90 million too high.

The debate over the value of Liberty House, which could determine if JMB or its creditors will own the company, could be heading for a confirmation showdown if both plans are approved by creditors in an upcoming vote.

Liberty House's Monahan, like the creditors his company is now aligned with, had not seen JMB's plan and declined comment on it today.

Liberty House has been operating a store at the same Kalakaua Avenue location since 1937. The 40,000-square-foot property belongs to the Queen Emma Foundation and is leased by Mitsui, a Japanese bank.

According to Monahan, the property is profitable compared with other department stores but could be far more profitable if broken up into smaller units and leased to multiple specialty retailers. The company, which is a party in the competing reorganization plan filed by the creditors last week, recently retained real estate firm Colliers Monroe Friedlander to seek tenants for the property. The effort has yet to be approved in U.S. Bankruptcy Court.

Monahan said he has discussed Liberty House's plans to become a landlord in Waikiki with JMB. He said that a large store no longer makes sense on high-value Waikiki real estate and that the company also is no longer focusing on tourists and does not have the kind of inventory needed to cater to Asian tourists. "The company's focus and product lines are really geared towards the local consumer," he said.

Under Liberty House's plan, the 80 employees of the Waikiki store would be given jobs elsewhere in the retail chain.

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